EU CONSUMER CYCLICALS: UPS; 4Q (to Dec) Results
(UPS; A2/A) (Equities -17%)
4Q numbers were actually strong (revenue +2%). FY adj. EBIT margin ended at 9.8% (-100bps), year-end ex. leases leverage at 2.25x. The equity slide is on its agreement with Amazon (largest customer) to lower volume by more than 50% by 2H26 and starting now. Amazon made up 11.8% of revenue this year so its a 6% (purposeful) cut in group revenues over 18-months. It's citing the high concentration with Amazon and "diminishing returns". I.e. it was lower margin customer - it was pushed for a number, all it gave was "extraordinary dilutive". It reiterates this was initiated by it, not Amazon.
We do see some read-through to credit - but mainly on the co guiding to doing sizeable equity pay-outs (perhaps in anticipation to today's reaction). Perhaps more significant is the read-through to how amazon delivery (used both for its website orders but also offered as a standalone service to businesses starting in recent years) is growing and impacting profitability in the market. In PostNL's earnings a similar issue of debate was its decision to hold onto perhaps lower profitability accounts. As we have said before IDS was a cheap view till recent, we are more cautious on it now not on RV but on potential supply and earnings continuing to point to lacklustre FY.
FY25 guidance;
- Revenue of $89b (-2.3%yoy) driven by Amazon reduction
- significant miss on consensus for $95b/+4%
- EBIT margin firm at 10.8% (in-line with consensus)
- expects to get to 12% in 2026
- Capex of $3.5b (down from $3.9b last year and lower than expected $5b)
- FCF of $5.7b (vs. $6.3b this year)
- Equity pay-outs totalling $6.5b (returned $5.9b this year)
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
FOREX: EURUSD Now Down 0.4% as Month End Approaches
- Worth noting the single currency has been under some pressure as we approach the month/year end WMR fixing window. EURUSD has extended session decline to 0.40%, to a fresh weekly low of 1.0361, while EURGBP is also down 0.3% on the session at 0.8268.
- As noted, 1.0335 remains key for EURUSD, the Nov 22 low and a bear trigger.
- For EURGBP, 0.8223 is the next support, the Dec 19 low, before major support at 0.8203.
US DATA: House Prices Continue To Rise, But High Rates To Maintain Headwinds
House prices rose a little more strongly than expected in October, though overall gains remained fairly steady from a longer-term perspective.
- The S&P CoreLogic/Shiller 20-city home price index rose by 0.3% M/M (0.2% expected/prior), putting the Y/y measure at 4.22% (4.1% expected, 4.6% prior). The broader FHFA house price index rose by 0.4% M/M as expected, vs 0.7% prior.
- By most measures, housing valuations remain stretched (vs affordability/rates, rental yields), though this has not translated into softer prices. Recent momentum is mixed: on a 3M/3M annualized basis, FHFA prices were up 5.1% in October (highest since April), though S&P 20-city softened to a 17-month low 3.8%. Those are fairly typical figures for pre-pandemic house price trends.
- Prices have remained supported amid historically low turnover in the housing market, exacerbated by high mortgage rates.
- At some point the standoff between buyers and sellers will end, potentially when unemployment increases and/or mortgage rates drop. As it stands, expectations are for housing market activity to pick up in 2025 (existing home sales are seen at a 3-year high with new home sales at a 4-year high), with building permits/starts at the highest in 2 years. That's alongside a very modest softening in the labor market (4.3% unemployment), with long-end rates falling (10Y Treasury yields 4.1%).
- Economic solidity and solid household balance sheets (in part due to elevated house prices) should prevent too severe a deterioration in the housing market next year, though optimism over residential construction activity and home sales looks misplaced given higher rates.
EUROPEAN INFLATION: MNI Eurozone Inflation Preview - December 2024
Services Momentum To End Year On A Soft Note?
- The holiday season stretches the December Eurozone inflation round over two weeks this year. It also has limited the number of analyst expectations for the data to only a handful, which centre on a higher headline number underpinned by energy base effects, for a current MNI median Eurozone estimate of 2.4-2.5%.
- That would represent a pickup from 2.2% prior, though core inflation is seen steady at 2.7%. MNI will provide updates on any changes to consensus as we emerge from the holidays.
- There are expectations that service inflation could moderate slightly in December vs November, but that would still leave services HICP in the 3.8-3.9% Y/Y area (3.9% Nov).
- Methodological issues are a key theme, both in terms of assessing the apparent softening of seasonally-adjusted sequential services inflation in recent months, and looking ahead, to January's annual category repricings / reweightings.
- While markets fully expect a 25bp cut at the next ECB meeting in January, they currently price only a 10% implied chance of an outsized 50bp cut – well off dovish extremes of around a one in three chance expected towards the end of November.
PDF Analysis Here:
